Capital Budgeting Issues - Essay Example

Multinational firms have to deeply look into the tax regulations that govern the prospective foreign nations, blocked funds, and currency exchange rates among other factors.
Question 2
How can the key political and economic risks be incorporated into the capital budgeting analysis?

Discussion
One of the mechanisms through which organizations can incorporate key political and economic risks in evaluating capital budgeting is to adjust the discount rate payback period (Shapiro et al 2009). Similarly, establishments can slot in the risks by adjusting the expected net cash flows, and at the same time calculating the net present value by using the exchange rates of the prospective nations, for such acts provide the administrators with more comprehensive estimations.
Question 3

Which method do you think is more preferred to incorporate the economic and political risks of a country to the capital budgeting analysis?
Discussion

The unpredictability of the global economy has undeniably prompted investors to be on the lookout for safe investment options (Hill, 2014). Capital budgeting is an integral process in the course of undertaking an investment, for it ensures that the entities involved settle on the best opportunities. Consequently, I presume that adjusting the expected net cash flows is the most preferred method of incorporating both political and economic risks in capital budget analysis. This is because such an adjustment ensures that the investors understand the dynamics of the political and economic factors, and the mechanisms they can employ to avoid them. Read More